Senator Sanders Introduces Medical Innovation Prize Bills

from the alternatives-to-funding-drugs dept

For those who recognize the very significant problems associated with pharmaceutical patents, one popular alternative is to set up an innovation prize system, where the government sets aside large sums of cash as a reward for those who create a drug-based cure for certain issues. Senator Bernie Saners has now introduced two bills that would create potentially giant funds for such efforts -- one directed just at AIDS/HIV and one at much wider medical innovation. The bigger bill would set aside .55 percent of US GDP, or more than $80 billion per year right now. That's a pretty big chunk 'o change. The important parts are that it would also set aside at least 5% of the money to go to "open source" medical innovation efforts, which could mean about $4 billion going into open source research.

Of course, this isn't the first time Senator Sanders has suggested such a thing. Four years ago, he introduced a similar effort. As we noted at the time, there's almost no chance that this goes anywhere, because it's a plan that's simply too radical and would upset way too many special interests. That said, while I do think that this would definitely be significantly better than what we have now, I'm not at all convinced it's a good plan overall. To make this easy, I'll just repost what I said four years ago:

If the plan actually worked, and created new, more affordable drugs that saved many more lives, you could make a compelling argument that the net benefit to the economy would far outweigh the $80 billion (see Murphy and Topel's research for support on that). However, it's still not going to be easy to get people to buy into it. More importantly, it's not entirely clear how you'd allocate this money fairly. Any system like this where the gov't is giving away money is going to be gamed by the pharma companies in one way or another. It'll be so lucrative that it will be nearly impossible not to have the system gamed -- especially when it's going to involve a bunch of bureaucrats trying to determine the value of a specific drug. Finally, the bill seems to be entirely focused on pharmaceuticals -- which is part of the problem today. With so much healthcare policy focused on pharma, people forget that new technologies may start to make pharmaceuticals obsolete. Then we're left with an $80 billion subsidy for an industry that should be going away. I'm all for the economic incentives that come from innovation prizes, but building a huge mis-targeted gov't bureaucracy around them seems risky. Really, it seems to just be replacing one system of gov't subsidies with a different one, and that hardly seems likely to fix the problems currently facing the healthcare space.

Again, this would definitely be better than what we have now, but I think it just replaces one market-distorting government subsidy setup with a different one.

hmmmm

The concept is great, but like the post points out, it needs a bit of work. How about a prize for ANY advance that can be proven to prevent or cure specifically identified medical issues. Then all forms of medical treatment, including preventative and natural medicine, can become profitable to research and develop. Put in some requirements for each prize so that money only goes to viable options. Also require the prize recipients to either develop and distribute their advance in a reasonable time frame or give it to the public domain.

Re:

Think about it for a second. If it weren't for patents, tax payers would never pay taxes. What incentive would they have to invest their tax dollars into government programs if there is no profit in there for somebody? and if taxpayers don't pay taxes, we can't have a government and so we would have anarchy.

Re:

Well the implementation of the idea, for one. But let's dwell upon this idea of 5% going to open source efforts. A ~$4bil pot will fetch you a lot in the open source community. A 95% that consists mainly of the existing pharm companies will inevitably struggle by the weight of their existing structure/mindsets. While a 5% that can move much swifter through collaboration will trump the value of its percentage.

At the end of the day more money spent towards medical innovation would seem better than war and its requisite weaponry.

the open source dividend

The prize fund eliminates all IPR monopolies on the products receiving the "end product" prizes. The open source dividend is designed to share the prize money not only with the entity that developed the product, but with people who openly shared, without royalties, the knowledge, data, materials and technology that were considered use in the R&D effort. The open source dividend is an incentive that works in the opposite direction as the Bahy-Dole Act. It rewards the decision to open source research, and it changes incentives to be open.

Maybe that is a good idea, one need to look at the finer points of the proposal first to dismiss it or not.

I just think medicine practice could be much, much better.

As one who experienced the medical profession recently in action, I believe they have a very large room for improvements, not only on the research and development but the treatment and diagnose of illnesses.

Money will not do the trick I believe, it is a problem of changing the paradigm to something that works better.

Directed Research Delusion

Where did Sen Sanders get the figure of .55 percent of US GDP from? It could also be expressed as X% of US government revenue. Or Y% of the Medicare budget. This is just a proposal to spend a huge amount of the poor old taxpayer's money on somebody's favorite project. It is pork on a grand scale.

It is also a fine example of the directed research delusion. Directed research is the idea that you can force something to be discovered by spending money on making it get discovered. Unpromising or fraudulent research in the favored area gets funding. More worthy research in other areas does not get funding. This guarantees that the overall efficiency of research funding falls. The directed research delusion is commonly held by government bureaucrats as a technique of trying to justify their own existence. It also means that more money gets spent on pointless bureaucracy and less on actual research.

Question for Michael Masnick

This is a question for Michael. In your blog, you say "I think it just replaces one market-distorting government subsidy setup with a different one." Given that drug development costs money, and we are now using a combination of direct funding and incentives (with the incentive mechanisms typically costing an order of magnitude more than the direct funding), what mechanisms do you think should be used to raise the money for R&D?

Anxiety Brisbane

Its a great idea - prizes work - look at the Ansari X Prize - $10m in 2004 and now we have a commercially viable spacecraft. Having a prize fund is an obvious solution - a prize provides the commercial incentive and can provide for specific criteria which need to be satisfied (e.g. cancer remission for 5 years, if relapse after X years then forfeit $X).

The writer mentions:

" More importantly, it's not entirely clear how you'd allocate this money fairly. Any system like this where the gov't is giving away money is going to be gamed by the pharma companies in one way or another. It'll be so lucrative that it will be nearly impossible not to have the system gamed -- especially when it's going to involve a bunch of bureaucrats trying to determine the value of a specific drug. "

Pharma companies are currently gaming the system - look up evergreening of patents. Where there are lawyers and accountants and laws which are subject to interpretation there will always be gaming. The point is to come up with a system which is workable and better than the current system.

Ideally, all governments should fund the prize or maybe the US can fund and ‘sell’ the cure to other countries, which might recoup the cost to the taxpayer. Economists have valued a cancer cure at $50 trillion (see http://phys.org/news63457049.html).
If the US could afford a trillion dollar bail out to the banks they can afford a $200 billion or more prize fund for curing cancer. This should have more political support because a third of the US population will get cancer and a quarter of those people will spend most or all their life savings to pay for treatment (seehttp://www.usatoday.com/news/health/2010-03-17-cancer17_ST_N.htm). If there’s currently no economic incentive to use healthcare resources wisely to maximize social benefits and minimize social costs, a rational population should want their government to create those incentives. At the moment we have pharmaceutical companies spending obscene amounts just to market their patented drugs as slightly more effective than the other pharmaceutical company’s slightly effective drug. From the patient’s perspective, I’m sure they would prefer if they just spent that money on researching a cure. Unfortunately, there is currently no real economic incentive for doing so, therefore, society should create that incentive. Society needs incentives to act. Why did we fly to the moon, why did we develop nuclear weapons? The greater the reward for society (and risk of failure), the bigger the incentive should be

It is commonly thought that the nearly-40-year “war on cancer” has largely been a failure, since the age-adjusted mortality rate for cancer is essentially unchanged over that time. Albert Einstein said that insanity was doing the same thing over and over again and expecting different results. The current system of using patent monopolies doesn't provide enough incentives to provide the results that society needs. This is because patented drugs don’t need to be effective, they just need to be ‘non-obvious’ and have ‘industrial utility’. We need to ask ourselves how much particular medical innovation is worth (e.g. cure for cancer) and then we need to create the concrete incentives. The good thing about prizes is they do not cost $1 until the criteria is fulfilled. A prize will also make it easier for people with radical ideas to get funding from investors, if there is a chance of a cure (because the reward is big enough). I dont care what anyone says, if there was a $100 billion prize fund set up to cure cancer, where any person on the planet can claim it, we'd see a cure in 10-20 years.